Keeping Tabs on the Ninth Circuit
April 02, 2021 - This Week at the Ninth

This Week in the Ninth: Chickens and Subpoenas

This Week in the Ninth:  Chickens and Subpoenas

This week, we take a look at two Ninth Circuit decisions tracing the limits of federal courts’ jurisdiction.  In the first, the Court addressed the Article III requirements that public interest organizations must satisfy in challenging alleged false advertising.  In the second, the Court considered how the diversity statute’s amount-in-controversy requirement may be satisfied when a party seeks to enforce an arbitrator’s subpoena. 

The Court holds that two organizations seeking to challenge a defendant's allegedly false advertisements lacked Article III standing because they failed to demonstrate the advertisements caused them to divert their resources. 

The panel:  Judges McKeown, Nguyen, and Whaley, with Judge McKeown writing the opinion.

Key highlight:  “Once Sanderson’s misleading advertisements were brought to the attention of the Advocacy Groups, they simply continued doing what they were already doing — publishing reports on and informing the public of various companies’ antibiotic practices. This evidentiary void cannot be filled by emails in which the Advocacy Groups’ employees shared articles about Sanderson’s practices and deceptive advertisements, querying internally whether something should be done; evidence of any diversion of resources remains missing.”

Background:  Sanderson Farms is a poultry producer that supplies the Olive Garden and other restaurants.  It had routinely used antibiotics in its chickens.  After Sanderson advertised that its chickens were “100% Natural,” and that there were “[n]o antibiotics to worry about here,” two public interest groups—the Friends of the Earth and the Center for Food and Safety—brought suit for false advertising.  After discovery, Sanderson moved to dismiss, contending that these groups lacked standing.  The district court agreed and dismissed for lack of subject matter jurisdiction.

Result:  The Ninth Circuit affirmed.  As it explained, to show “organizational standing,” the plaintiff associations “needed to show that the challenged conduct frustrated their organizational missions and that they diverted resources to combat that conduct.”  And, the Court continued, resources that the groups spent before they learned of Sanderson’s alleged misrepresentations, or that they later spent in pressing and promoting this litigation, were irrelevant, as were any costs that were simply “business as usual” for the groups. 

The Ninth Circuit concluded that the groups did not demonstrate that Sanderson’s advertising had caused them to divert any resources.  The Court emphasized that they “did not publish action alerts or other advice to their members targeting the advertising; did not address Sanderson’s advertising in any campaign, press release, blog post, or other communication; did not petition Sanderson; and did not protest Sanderson’s advertising.”  As the Court further noted, the groups had acknowledged that they would have continued their preexisting campaigns to pressure restaurants to stop using Sanderson as a supplier whether or not Sanderson had aired these advertisements.  While the groups had also submitted a declaration asserting that their advocacy efforts had increased by 25% as a result of the advertisements, the Ninth Circuit concluded that the district court did not clearly err in instead crediting other, contradictory evidence.  As the Court noted: “After nearly two years and mountains of discovery, the Advocacy Groups could meaningfully offer only a single conclusory, contradictory, and uncorroborated statement as evidence of diverted resources.”

The Court holds that a plaintiff can satisfy the amount-in-controversy requirement for diversity jurisdiction in a suit for enforcement of a third-party subpoena under Section 7 of the Federal Arbitration Act with a good-faith allegation that the benefit to the plaintiff of obtaining the subpoenaed information exceeds $75,000.

The panel: Judges W. Fletcher, Watford, and Hurwitz, with Judge Hurwitz writing for the majority and Judge Watford concurring.

Key highlight:  “Because there is a good faith allegation that the benefit to the plaintiff of obtaining the subpoenaed information in this controversy exceeds $75,000, we reverse.”

Background:  When an arbitrator issues a third-party subpoena, federal district courts have power to enforce the subpoena under Section 7 of the Federal Arbitration Act (FAA).  But although the FAA is a federal law, the Supreme Court has held that it does not by itself give a federal court subject-matter jurisdiction over a suit.  So a party filing an action to invoke the court’s subpoena-enforcement authority must first establish some basis for subject-matter jurisdiction.

That is what plaintiff Maine Community Health Options sought to do here.  It is an insurer arbitrating a dispute over billings with a pharmacy benefits manager, Navitus Health Solutions.  It wanted information about billings by pharmacies in Navitus’s network, including Albertsons.  The arbitrator issued a subpoena to Albertsons, and Albertsons objected.  So Maine Community Health Options turned to federal court under Section 7, filing this action against Albertsons to seek enforcement of the arbitrator’s subpoena.  As its hook for subject-matter jurisdiction, Maine Community Health Options asserted diversity jurisdiction under 28 U.S.C. § 1332.  The district court held the suit fell short of the amount-in-controversy requirement and dismissed.

Result:  The Ninth Circuit reversed.  The majority recognized that the question here—how to apply the amount-in-controversy requirement to subpoena-enforcement suits under Section 7—was an issue of first impression in the Ninth Circuit.  But it agreed with how the Second Circuit resolved it:  “the amount in controversy can be established by a ‘good faith’ allegation of the value of the subpoenaed information to the plaintiff in the underlying arbitration dispute.”

Thus, a Section 7 plaintiff can satisfy the amount-in-controversy requirement even if—as here—the cost to the defendant of complying with the subpoena is less than $75,000.  It was enough, the majority held, that Maine Community Health Options “plausibly allege[d] that the subpoenaed information will likely affect more than $75,000 of its claims against Navitus” in the arbitration.  That was so even though the subpoenaed information would not lead to the recovery of the full amount sought in the arbitration, or even just the amount tied to Albertsons, the target of the subpoena.  The majority noted that the jurisdictional threshold was “but 4 percent of the total relevant billings from Albertsons” and that an expert declaration supported the plaintiff’s view that the subpoenaed information would likely document more than $75,000 in damages.  These “plausible good faith allegations” were enough.

Judge Watford would have reached the same result by a different legal path.  He disagreed with the majority over which was the relevant controversy to the amount-in-controversy requirement.  The majority looked to the controversy between the federal-court plaintiff (Maine Community Health Options) and defendant (Albertsons, the target of the subpoena).  Judge Watford looked instead to the underlying controversy being arbitrated—that is, the dispute between the federal-court plaintiff (Maine Community Health Options) and its opponent in the arbitration (Navitus).  Judge Watford would ask whether a district court could have exercised subject-matter jurisdiction over the dispute being arbitrated.  To meet the amount-in-controversy requirement under his view, the arbitrated claim must be worth more than $75,000; the value of the subpoena by itself does not matter.

That approach follows, according to Judge Watford, from “the structure of the FAA as a whole.”  In his view, “Congress envisioned a § 7 petition not as a freestanding lawsuit, but as an adjunct to the ‘underlying substantive controversy’ between the parties in arbitration.”  Other sections of the FAA, he believes, look to the underlying dispute being arbitrated to “defin[e] the range of controversies that Congress deemed important enough, from a federalism standpoint, to warrant federal courts interceding.”  Judge Watford also argued that the majority’s approach produces anomalies when it would give subject-matter jurisdiction over a subpoena-enforcement suit but not the underlying dispute, or vice versa.  And he touted his approach as more administrable, avoiding a “tortured” inquiry over the value of the subpoena.